RWH063: Avoid Disaster w/ Howard Marks

What It Covers

Howard Marks, chairman of Oaktree Capital Management, shares investment wisdom from fifty-six years of experience, covering risk management, market cycles, avoiding disasters, the importance of defensive investing, and lessons from building a $218 billion alternative investment firm.

Key Questions Answered

• •Defensive Investing Philosophy: General Mills pension fund stayed between 27th-47th percentile for fourteen years but ranked fourth percentile overall because avoiding losers matters more than hitting winners. Most investors shoot for stars, occasionally shoot themselves in foot, and big losses take years to recover from.
• •Market Timing Discipline: Marks made only five major market calls in fifty years (2000, 2004-07, 2008, 2012, 2020), not through macro predictions but by assessing investor behavior. When people act carefree and prices rise high, run for hills. When depression renders things cheap, become aggressive. Probability beats certainty.
• •Risk Posture Calibration: Investors should place themselves on zero-to-100 risk speedometer based on age, wealth, income, dependents, aspirations, retirement proximity, and intestinal fortitude. Determine normal position, then recalibrate around it as market opportunities arise. Conscious choice between maximizing gains versus minimizing losses required.
• •Inefficient Market Advantage: Success requires knowledge edge in less efficient markets where hard work pays off. High yield bonds in 1978 took eighteen years to attract first public pension fund because reputational concerns created bargains. Specialization in areas others avoid provides superior returns versus competing in efficient markets.
• •Crisis Investment Execution: After Lehman bankruptcy September 2008, Oaktree invested $450 million weekly for fifteen weeks, deploying $7 billion in one quarter from pre-raised distressed debt fund. Pre-raising capital before crises enables action when others freeze. Institutional constraints and committee consensus kill idiosyncratic opportunities that generate outperformance.